Discover Bank - Original Creditor as Plaintiff (profile)

DISCOVER CREDIT CARD COLLECTION SUITS IN TEXAS COURTS

NAME OF CARD ISSUER AND ENTITY TYPE

Discover Bank is a bank operating out of Delaware and a leading issuer of credit cards nationwide. It is not a national bank under the National Banking Act, but it is insured by the FDIC. Discover Bank appears as plaintiff in debt collection suits, but other entities are also involved. 

SERVICERS AND SUBSIDIARIES

March  2015 UPDATE: DB SERVICING CORPORATION DOES NOT EXIST ANY MORE. See image of record from Ohio Secretary of State: 

The new servicer is DISCOVER PRODUCTS INC, a UTAH corporation. Also see list of Discover Financial Services family of companies (image added to bottom of this post) 

Discover Bank relies on servicers to handle part of its operations. Two affiliated entities' names appear in summary judgment affidavits:  DB Servicing Corporation and DFS Services LLC.

The numerous people who execute summary judgment affidavits for Discover Bank in debt collection suits (see partial list below) are employees of the servicers. Some identify themselves as employee of one servicer on some affidavits, and as employee of the other entity on others. They may be full-time affidavit signers, but their job titles are typically given as “Legal Placement Account Managers” or “Litigation Support Specialist”.

LAWFIRMS AND LAWYERS THAT SUE ON DISCOVER BANK'S CREDIT CARD ACCOUNTS IN TEXAS 

Discover Bank has many customers in Texas and sues on defaulted accounts in its own name. For that purpose, it employs more than one law firm in Texas. The debt collection firms used by Discover include ZWICKER& ASSOCIATES; RAUSCH, STURM, ISRAEL, ENERSON & HORNIK, LLC ("RSIEH"); and SCHEINTHAL & KOUTS, L.L.P.

Additionally, Discover Bank debt suits are also brought by WEINSTEIN & RILEY, P.S. a law firm with offices in Seattle, Washington. Because it is a legal requirement, WEINSTEIN utilizes Texas-licensed attorneys to handle cases in Texas court (Josh Harrison, Jason D. Anderson, Cody Moorse).

VOLUME OF LITIGATION 

From August 2012 to August 2013 Discover Bank filed 454 cases in Harris County District Courts. The total for the four civil county courts at law for the same time span was 66.
  

DISCOVER CARD AGREEMENTS

Discover Bank’s form contracts are typically more than two dozen pages long and have a table of content, with page references. The bank’s standard agreements come in many versions, which are identified by Copyright Year and by versions codes consisting of numbers and a letter in the footer of the first page. 

For Example: TL20A.0508 from 2008, and  TL22H.0210 from 2010 

  
The iterations of agreements appear to be consecutively numbered. Assuming Discover Bank started with TL01, there are now more than twenty successive versions, not counting version distinguished by the letter designations ("A" and "H" in the examples above).  

Arbitration Clause 

Like most other CMAs, Discover Bank CardmemberAgreements contain arbitration provisions. The choice of law is Delaware, which reflects its home state and that state’s requirement that all banks located there operate under Delaware law.

Usury Avoidance Clause 

Unlike most other CMAs, Discover card agreements also contain a usury savings clause. That clause is designed to avoid usury liability in the event a variable interest rate exceeds the legal limit in a particular jurisdiction. It provides for a credit for all overcharges resulting from the application of an excessive interest rate.

MONTHLY ACCOUNT STATEMENTS

Finance Charges

Monthly Discover Card statements contain two or three balance categories, depending on whether a balance transfer offer was made and utilized. The standard balance categories are Purchases and Cash Advances. Different interest rates may apply to different balance categories. The interest rate for the balance transfer category will typically be a low rate (e.g  3 for 4 percent) for a limited time.

Interest rates on Discover Card account statements run as high as 29.99%. This is legal under Delaware law, but could be challenged as usurious if the Plaintiff does not invoke Delaware law or other basis for exemption from Texas interest rate limits (-- > usury under Texas law). 

Payment address and address for correspondence 

Discover Bank statements have either one of two addresses printed on payment coupons: a post office box in Phoenix Arizona ZIP Code 85038 or one in Carol Stream, Illinois with ZIP Code 60197.

Interestingly, Discover Bank requests that correspondence be sent to an address in Utah: P.O. Box 30943 Salt Lake City, UT 84130. This is presumably the address where complaints (billing disputes) should also be sent. Implication: If an affiant testifies about no dispute having been received, the affiant should show a connection to the Utah office to be in a position to do so based on personal knowledge and familiarity with mail received and documents created at that location.  

Purported “duplicates” of monthly statements for use in litigation

For litigation purposes, Discover Bank (or an affiliated company) re-generates statements from a database; oftentimes a whole stack of them (but the volume of documentation appears to vary among attorneys). They are not necessarily true and accurate copies of the statements that were actually mailed near the date shown as the billing cycle closing dates. On occasion the statements created for use as litigation exhibits differ from the originals. They may even have a different mailing address on them.  

Additional documentation produced by Discover as Plaintiff in debt collection suits 

Unlike most other credit card issuers, Discover Bank produces (and uses as exhibits) images of checks signed by card members and sent with payments, along with the corresponding payment coupons torn off from the monthly statements and enclosed in the envelope in which the payment is sent. At least in a subset of debt collection cases this type of evidence appears as part of the summary judgment submission. Unlike the re-generated monthly statements, these exhibits appear to be genuine copies (or images) of the originals as indicated by the presence of handwriting on them.  

  

AFFIDAVIT SIGNERS IN RECENT CASES  

Danielle Laughrey, identified as "employee and custodian of records for DB Servicing Corporation, the servicing affiliate for Discover Bank". Her affidavit states that DB Servicing Corporation is a wholly-owned subsidiary of Discover Bank.  Like other affiants, Laughrey also signs affidavits in Franklin County in the State of Ohio. She also acts as a notary for other affiants. 

Patrick Sayers, identified as "Litigation Support Specialist" for DB SERVICING CORPORATION, signs affidavits in Franklin County, Ohio (Notary: Phyllis A. Scholey)

James Ball, Litigation Support Manager for DB Servicing Corporation

Natasha Szcyzgiel, Legal Placement Account Manager, signing affidavits in the State of Ohio, County of Franklin.

Additional affiants whose affidavits have appeared in lawsuits by Discover Bank in Texas courts: 
Heidi Leo, with Abigail Fried as notary
Joshua Frazier, with Bethany Stark as notary 
Janice Dorr, with Schloley as notary
Bethany Stark, Robert Adkins, Stacey Holmes, Stefanie Watkins, Tiffany Adair, Stephen Ball, Erin Marmol

   

WHAT’S UNIQUE OR NOTEWORTHY IN SUITS ON DISCOVER BANK ACCOUNTS?

The usury-avoidance clause that is a feature of all Discover Bank cardmember agreements.

DISCOVER FINANCIAL SERVICES & DISCOVER BANK: RELATED ENTITIES

Discover Financial Services - List of Subsidiaries incl. Discover Bank (2015)

OTHER CARD ISSUERS THAT BRING THEIR OWN LAWSUITS AGAINST CONSUMERS / CARD-HOLDERS

American Express Centurion Bank
American Express Bank, FSB
Bank of America (through FIA Card Services N.A.) 
Capital One Bank
Citibank, N.A.
Target National Bank

Motions for Summary Judgment (MSJ) filed by Plaintiffs and Defendants in Credit Card Debt Collection Cases

Motions for Summary Judgment in Debt Collection Cases

WHAT IS A MOTION FOR SUMMARY JUDGMENT?

A summary judgment is a disposition of case without trial that ends the case either for good (final summary judgment) or disposes of some issues but not all ends the case only with respect to one defendant if there are several defendants (partial summary judgment, also called "interlocutory"). The vehicle to obtain such a disposition is a motion for summary judgment. 

MOTION FOR FINAL SUMMARY JUDGMENT VS. MOTION SEEKING PARTIAL RELIEF

A summary judgment motion may seek partial relief only, or target one defendant where two or more are being sued, but the more common scenario in debt collection cases is a motion that ask the court to resolve the case in its entirety. Such a motion is called a motion for final summary judgment, although it may not be titled as such. The way the motion is names does not control; the substance is more important.   

TRADITIONAL MSJ VS. NO-EVIDENCE MOTION

Motions for summary judgment can be filed by the Plaintiff or by the Defendant. Under the Texas Rules of Civil Procedure, there are two types of summary judgment motions: traditional motions for summary judgment (sometimes called matter-of-law motions) and no-evidence motions.

A motion for no-evidence summary judgment is filed by the opponent of the party that seeks affirmative relief (in the form of a money judgment) or the opponent of the party that seeks to win with an affirmative defense. Stated differently, a no-evidence motion is filed against the party that has the burden of proof on an issue. Defendants may file such a motion to challenge the evidentiary basis of the Plaintiff’s causes of action while the plaintiff may file such a motion to dispose an affirmative defense the defendant has asserted in his or her answer, such as a limitations defense. 

The motion is called no-evidence motion for a reason. When filing such a motion, the movant avers that the other party has no evidence on one or more elements on which that party has the burden of proof, thereby forcing the nonmovant to show otherwise. It is essential that the element (or elements) be expressly identified in the motion. It is not enough to merely reference the Plaintiff’s theory or theories of recovery. 

If the party against whom the no-evidence motion is filed does not come forth with competent evidence on the challenged element, the motion must be granted.  If the nonmovant does not respond at all, the movant wins by default. The traditional motion, by contrast, cannot be granted by default. This is a key difference between the two types of motions. Other aspects of the summary judgment procedure, however, are identical.

TIME TABLE FOR ALL MOTIONS FOR SUMMARY JUDGMENT

All motions for summary judgment must be served at least 21 days before the hearing or submission date so as to give the nonmovant adequate time to prepare a response. Depending on the method of service, three day may have to be added. As a practical matter, at least 30 days should be allowed.

Some attorneys file and serve the motion with a hearing notice, others do not. In courts or counties in which a fiat (order) is required to set a hearing, it may not be possible for the hearing notice to be served at the same time, because the date may not be immediately known. A date may have to be requested from the clerk, sometimes by phone or by mail. 

A motion for summary judgment may simply be filed without notice of hearing accompanying it, but in order to obtain a ruling on it, the movant must set it for hearing, or request that the clerk or judge do so.  If such a motion is not set for a hearing, the non-movant has no duty to respond, although it may still be wise to do so. 

A summary judgment motion does not necessarily have to be set for an oral hearing. It may be ruled upon by submission if the particular court, or the local rules, provide for this option. But in the case of submission without oral hearing,  a notice of the date of submission is still required because the date set for the hearing or submission controls the deadline for filing a response. If there were no such notice, the opponent would not know when such response is due.

Notices relating to summary judgments can be confusing to unrepresented litigants who have filed an answer. They may not appreciate the difference between trial and summary judgment, and may end up disregarding a notice relating to a summary judgment motion because they believe their case will be called on the day of trial. Sometimes creditors' attorneys file to give proper notice altogether. 

Under the Texas rules, responses to motions for summary judgment are due seven (7) days prior to date of the hearing (or “hearing by submission”). Make that eight (8) to avoid any argument as to how the days should be counted backwards from the hearing or setting date. 

If the deadline is missed, a motion for leave to file late should be filed if the non-movant wants the court to consider the belated response and any accompanying evidence. If the defendant misses the summary judgment proceeding altogether, it may be time to figure out how to move for reconsideration or prepare an appeal from a summary judgment. 

A traditional summary judgment (money judgment for the creditor) can be appealed on the basis that the summary judgment evidence was insufficient even if no response was filed. But see -- > Pitfalls and traps when appealing pro se --> Sample appellate briefs. 

If lack of notice was an issue, however, if may be necessary to file a motion for new trial because the defendant will have to prove that there was no notice, and that will generally require an evidentiary hearing. ---> Motion for New Trial  

Alternatively, the nonmovant could move for a continuance (--> motion for continuance) or a reset of the hearing.

A motion for continuance would also be appropriate if the nonmovant needs additional time to procure documents or if an affidavit is needed to oppose the summary judgment motion that cannot be timely obtained. Generally, the movant for a continuance or reset should be prepared to show that the missing affidavit or materials could not be procured earlier despite reasonable diligence, or that the other party stonewalled and failed to produce documents in the course of discovery even though they were specifically requested and no valid objection was asserted in the first instance, or that the objection was not sustained by the court.  

TRADITIONAL MOTION FOR SUMMARY JUDGMENT

MSJ Filed By the Plaintiff

Attorneys of original creditors and other debt plaintiffs typically file motions for summary judgment, hoping to avoid the need for trial and the hassle of having to show up with live witnesses. Such motions may not even require a court appearance by attorney if the court in which the case is pending entertains such motions upon submission or on a walk-in basis. 

A traditional motion for summary judgment must expressly state the cause of action on which moneydamages are sought, or the grounds for attacking a specific affirmative defense, or several such defenses. --> Creditor causes of action in Texas. 

A plaintiff moving for summary judgment on its own claims must establish all elements of a valid cause of action as a matter of law. This is a higher standard than the preponderance-of-the-evidence standard that applies at trial. Additionally, the court is not supposed to make credibility determinations, weigh evidence, or resolve contradictions in the evidence before it. If those a present, the motion should be denied and the case should go to trial. 

The evidence for summary judgment purposes comes in the form of summary judgment affidavits and documentary exhibits, for the most part. The exhibits will typically be attached to an affidavit. Sometimes they marked with letters (Exhibit A, Exhibit B, Exhibit C), other times with numbers; or a combination of letters and numerals;  sometimes they are not marked at all. 

Occasionally, the motion for summary judgment will be based on deemed admissions, or will invoke the deemed admissions rule in addition to being supported by documentary exhibits attached to an affidavits.    

MSJ Filed By Defendants

Defendants in debt suits can file motions for summary judgment, (click link to subsequent post on this topic) but this is not a very common practice. Some consumer attorneys file no-evidence motions, but in light of the huge number of debt collection cases on court dockets and the incidence of attorney representation, a Defendant's Motion for Summary Judgment (DMSJ) is a rare animal, statistically speaking. 

Pro se defendants generally do not know how to file such summary judgment motions, and attorneys for Defendants will calculate the chances of such a motion being successful and will likely conclude that the likelihood of prevailing is low, or that such a motion would be frivolous altogether. Under Rule 11, a baseless motion can result in sanctions, in addition to making the attorney look bad. 
  
There are, nevertheless some obvious exceptions.

If the debt claim is stale and appears to be barred by the statute of limitations, a traditional motion seeking to prove that the plaintiff’s claim is time-barred may be warranted. (--  > Defendant’s motion for traditional summary judgment on affirmative defense, such as the applicable statute of limitations).

If suit was brought by a debt buyer, and the contract shows a different financial institution as card issuer than the one alleged in the plaintiff’s pleadings or identified as assignor in the assignment proof, it may make sense to challenge the plaintiff’s right to sue based on (want of) privity of contract and standing to sue. Since an assignee has the burden of proof with respect to the alleged assignment of the debt, the lack of privity and want of standing could also be raised by a no-evidence motion.  

TRADITIONAL SJ MOTION VS. TRIAL

There are several important differences between a summary judgment proceeding  and a trial on the merits (which in debt collection cases is almost always a bench trial, i.e. one without jury).  

The most obvious one is that a trial provides occasion for live witness testimony whereas no testimony at all can be received at a summary judgment hearing (with the exception of testimony set forth in timely filed affidavits). That said, many trials of debt collection cases are a very brief affair and either involve no witness testimony, or testimony by the defendant only if called as a witness by the plaintiff’s attorney for the purpose of eliciting admissions. 

Pro se litigants will often volunteer to give testimony "to tell their side of the story", and make themselves subject to cross-examination and impeachment, even if they were not subpoenaed as trial witnesses. Some judges will swear them in as a matter of routine without any questions asked about a subpoena. 

The other exception is attorney testimony about reasonable attorney fees (if any are sought in the case). A plaintiff’s attorney may offer testimony on such fees as an expert witness, and will be subject to cross-examination. Most pro-se litigants have no clue about how to cross-examine a witness, not to mention the plaintiff's attorney, and are not qualified to opine on attorney's fees unless they have the requisite expertise. Some creditors' attorneys are quite unreasonable when they swear to what is reasonable in their own self-serving expert opinion. Others do not seek attorneys fees at all as a matter of policy, or don't insist on them at trial. 

In the vast majority of debt collection cases that go to trial, the debt plaintiff will rely on business records filed under a business records affidavit rather than having a live witness show up to testify on behalf of the bank (or the debt buyer) in court. Most will not bother to subpoena the defendant. Many defendants do not show up anyhow, assuming they even filed an answer in the first place. 

But there is an important difference with respect to affidavits too. 

At trial, the plaintiff cannot adduce facts through a summary judgment affidavit because the rule permitting summary judgment affidavits does not apply at trial, and any testimony by an affiant that goes beyond the scope of laying the predicate for admission of business records would constitute excludable hearsay because the witness’s out-of-court statements are not subject to cross-examination. Hearsay objections may, of course, be waived by failing to make them. Therefore, attorneys for banks and debt buyers may still try to use them when the defendant does not show up for trial, or when the defendant does shows up but is not represented by attorney, and does not know which objections are available. 

The other major difference between summary judgment motions and trials is the applicable standard of proof. At trial, the standard is lower, and the court may weigh conflicting evidence and accord some evidence more weight than other. The judge may also pass judgment on the credibility of live witnesses if there are any. In other words, the trial judge gets to decide who to believe if conflicting stories are being told. A judge is also likely not to believe a witness who contradicts himself, or makes statements that conflict with what appear to be authentic documents, such as account statements with the defendant's name and address on them, particularly when those documents are filed as attachments to a business record affidavit. If a defendants contests correctness, it would be helpful to have documentary proof to back up the testimony. But if the defendant is pro se, he should make sure to study up on predicates for admissibility of documents and evidentiary objections because the attorney for the creditor will surely make objections.     

Finally, the purpose of a trial is a final resolution of the case, meaning that all issues are resolved and that the defendant wins if the plaintiff fails to prove its entitlement to judgment under the lower standard of proof that applies to trials.  An unsuccessful motion for traditional summary judgment, by contrast, does not mean that the non-movant wins the case. An order denying such a motion does not preclude a second, improved motion (if still timely under the scheduling order or similar case management plan) or a similar motion accompanied by better evidence and/or a different affidavit Even a debt plaintiff who fails to succeed with multiple successive motions for summary judgment will still have a chance to makes its case at trial.

RELATED TOPICS AND BLOG POSTS:

Can a defendant in a debt collection suit file a motion for summary judgment? - Yes, but ...
Motions for summary judgment by debt plaintiffs
The summary judgment rule in Texas courts
The summary judgment standards


Last revision: 12/8/2018

Plaintiff's affidavits in debt-collection cases: Summary Judgment Affidavits, Affidavit of Claim, Attorney Fee Affidavits

Affidavits Filed by Debt Collection Attorneys in Credit Card Suits  

WHAT IS AN AFFIDAVIT?

An affidavit is a sworn written statement signed by the person making it (affiant) and by a notary public or other official authorized to administer oaths. The notary’s certification appears at the bottom of the page, or on the last page, and is called the jurat.

DIFFERENT TYPES OF AFFIDAVITS

In debt suits, three types of affidavits are commonly encountered: Affidavits that contain some facts about the case (or purport to do so); business records affidavits, whose purpose is to make documents admissible; and attorney fee affidavits. The first two categories may be combined into a hybrid affidavit.  

Other affidavits may be filed under specific circumstances, such as to establish the process server’s inability to effect service, and to support a motion other than a motion for summary judgment, such as a motion for continuance, or a motion for new trial. Some motions must be sworn (“verified”) or have an affidavit attached. 

An affidavit is always required for a motion for summary judgment, and for default judgment motions that are not set for an oral hearing. If a debt plaintiff seeks attorney’s fees, a fee affidavit must also be filed to support the reasonableness of the amount of fees being sought. Attorney’s fees are not liquidated damages.  

SUMMARY JUDGMENT AFFIDAVITS 

Summary judgment affidavits are governed by the summary judgment rule. They may be used to present testimony to the court that would otherwise constitute hearsay because the witness will not be present and available for cross-examination at the hearing. Such affidavits may not be used for trial, to which the summary judgment rules do not apply. They are specifically authorized for summary judgment proceedings, in which there will be no opportunity for presentation of live witness testimony because an oral hearing is only for attorney argument, assuming an oral hearing takes place at all. Many courts rule on summary judgment motions by submission.  

The quality of affidavits, of course, varies and specific affidavits may not be admissible for summary judgment purposes either, but this will in most cases require a specific objection to the affiant’s qualification, or a challenge on some other basis. Affidavits of assignee’s (debt buyers) are notorious for poor quality (-- > robosigners).

Summary judgment affidavits often do double duty as business records affidavits, even though they are not so titled. Conversely, affidavits can be found that are denominated “BUSINESS RECORDS AFFIDAVIT”, but contain factual averments in addition to the standard predicate language to make business records admissible as an exception to the hearsay rule. One-page affidavits filed by RAUSCH in Target and Capital One debt suits, for example, contain a line indicating when the account was established. 

Affidavits filed in debt collection suits are typically signed by a representative of the Plaintiff, whether that is the original creditor or a debt buyer. In some cases, several affidavits are attached to motions for summary judgment. The additional ones are typically limited-purpose affidavits that provide information on assignment or sale of an individual account or of a portfolio of accounts (“Affidavit of Sale”) or authenticate specific documents (such as a bill of sale or a document regarding a financial institution’s merger or name change).  

AFFIDAVITS ATTACHED TO PLEADINGS 

Leaving aside suits on sworn account and bill-of-review suits, a plaintiff is not required to attach an affidavit to the original pleadings. A number of debt collection plaintiffs nevertheless do so, presumably in aid of default judgment, should the defendant fail to answer after being served with the citation.
 

Occasionally a petition in a credit card debt suits invokes the sworn account rule, which requires that sworn proof be attached. But sworn account is not a proper theory of recovery in a debt collection suits involving a bank debt, and should be challenged on that basis, either by motion for summary judgment, or by special exceptions. 

Affidavits attached to pleadings are typically titled “Affidavit of Claim” or some variation thereof.  In some cases, the plaintiff’s attorney will try to make the affidavit a part of the summary judgment submission by referring to it in the motion and incorporating it by reference. In such case, the affidavit should be dealt with in the defendant’s response, in addition to any affidavit and exhibits attached to the motion for summary judgment itself.

ATTORNEY FEE AFFIDAVITS 

Attorney fee affidavits are limited-purposes affidavits, as the name implies. They also constitute an exception to affidavits for summary judgment generally in that the Plaintiff’s attorney is allowed to sign such an affidavit, and thus appears as a witness. When the attorney testifies on fees incurred in the lawsuit, he or she acts as an expert witness (with respect to reasonableness of fees in the relevant legal market), but also as a fact witness with respect to the efforts made in the specific case, such as time expended, and attorney qualifications and experience, which are relevant to the hourly rate. 

Many law firms representing creditors in mass debt collection litigation do not seek fees, or no longer do so, even though attorney’s fees are authorized by statute (Chapter 38 of the CPRC) in breach of contract cases.
 

Any one attorney’s involvement in such a case is bound to be minimal because the firms that specialize in litigating on behalf of leading card issuers and their assignees all use automated document production systems to generate pleadings, motions, affidavits, and other documents. 

If there is an oral hearing or bench trial, an attorney will have to appear (and incur billable time), but in many instances it will not even be the attorney of record whose signature appeared on the pleading.

AMOUNTS OF FEES IN DEBT COLLECTION CASES 

Among the debt collection attorneys who seek fees, the amounts vary widely, starting with $400 or $500 at the low end up to thousands of dollars at the other end of the scale. The higher amounts are typically seen in cases involving high balances (-- > amount in controversy). Some debt collection attorneys will simply divide the amount by 3 and claim the resulting amount as a reasonable fee for a case of this nature. 

The Texas Supreme Court has set some guidelines for the determination of what is a reasonable amount of fees (-- > Arthur Andersen fee factors), but the criteria are numerous, and vague.  Given such ambiguity, the trial courts have considerable discretion on the matter, and may also take into account variation in the cost of legal services among urban and rural counties. Because there is no hard and fast rule for computing attorney’s fees comparable to the federal “loadstar”, there is also a considerable amount of case law resulting from appellate litigation over the fee factors and their relative weight, fee segregation, and other issues. 

 

Attorney's fees and fee affidavits in debt collection cases

ATTORNEY’S FEES 

When it comes to attorney’s fees, Texas follows “The American Rule”, meaning that each party pays its own fees. Until the arrival of the expedited action rule this year, that it. But even under the American (as opposed to British/European rule) plain and simple, attorney fees could be awarded if the underlying contract provided for them, not to mention that Chapter 38 of the CPRC has long provided an exception for certain types of claims, including breach of contract claims. 

The 2013 rule changes are no sea change in that regard. The most notable innovation is that the new rules give Defendants a chance for a fee award too. This should make it more attractive for attorneys to defend cases on behalf of cash-strapped consumers being dragged into court on unpaid credit card bills. After all, such cases are often dismissed or nonsuited when a consumer attorney gets involved because the plaintiff does not have adequate documentation. Now, dismissal can be sought early on, with a potential fee award for the efforts of the defendant's counsel.

Nor is Chapter 38 the only statute providing for a fee award. So, in essence, the American rule pretty much boils down no fees being available in a tort case, unless it’s based on a statutory cause of action, e.g. Theft Liability Act rather than conversion; or statutory fraud as opposed to common-law fraud. 

FEES AUTHORIZED BY CONTRACT VS FEES BASED ON STATUTE   

The main difference between a fee claim under Chapter 38 and one under a contract provision is that the Chapter 38 authorizes fees only to a successful plaintiff, i.e. one who secures an award of damages, and that it has certain other requirements, while an award of attorney’s fees based a contract provision is not so restricted. It will instead depend on what the parties agreed as revealed in the attorney fee provision of their contract. This may include an agreement that the prevailing party is entitled to such fees, including a prevailing defendant. A defendant who manages to defeat a contract claim by a debt collector cannot obtain a fee award under Chapter 38. 

PRESENTMENT REQUIREMENT 

As for the requirements for fee recovery under Chapter 38, the party relying on this chapter must first present the claim to the opposing party so as to provide that party an opportunity to pay the debt without incurring attorney’s fees. This requirement is easily met. After all, it is standard practice for debt collection attorneys to mail a dunning or demand letter.  The only questions regarding this “condition precedent” for fee recovery may be whether a copy of the demand letter is included among the summary judgment exhibits (or offered at trial) and whether it qualifies as “presentment”. In rare cases, the plaintiff’s attorney may be reluctant to produce it if it would (or arguably could) support an unfair debt collection claim under the FDCPA. 

But testimony that such a letter was sent, or an admission by the defendant that a demand letter was received, may be sufficient. According to the case law, the “presentment” does not have to be in a particular form; nor is there a prescribed form or stock verbiage (as there is, for example, for a business records affidavit, or a sworn account affidavit). Additionally, the defendant would have to specifically deny in the answer that “all conditions precedent have been met or satisfied” if the plaintiff includes that verbiage in its original or amended petition.

The best way for a debt suit defendant to avoid being saddled with attorney’s fees is to win the case. If that is not feasible, or not a likely prospect, it may be worth quibbling about the amount, particularly when it seems unreasonable. 

What is reasonable or not is not so clear, so there is plenty of room for disagreement; not to mention the defendant’s attorney should be equally qualified to opine on reasonableness of fees, and can produce conflicting testimony for her own the occasion, if warranted. In cases brought by certain debt collection attorneys of certain law firms it is highly warranted because their sworn testimony of what is reasonable (in cases that are invariably based on stock pleadings and motions) falls on the far right end of the spectrum. 

VARIATION IN AMOUNTS OF FEES PLEADED FOR 

These days, many debt plaintiffs do not plead for attorney’s fees at all. Others routinely claim $400-$500 not including court costs; but some ask, and have their attorneys swear to the reasonableness of, much higher amounts. 

Some debt collection firms compute the attorney’s fee amount as a percentage of the amount of the debt. James Hull, for example, routinely pleads for a third of the amount in controversy, and Anh Regent uses a percentage likewise (although the amount appears in a request for admissions, rather than within the attorney fee paragraph of the petition itself). Regent tries for a more modest 25%, but this can still be a hefty sum, if the amount sued for is on the upper end of the typical range. 

ADDITIONAL TOPICS PERTAINING TO ATTORNEYS FEES IN DEBT COLLECTION CASES 

New Expedited Action rule provides for attorney fee recovery by prevailing defendants

Fee award under Chapter 38 of the Texas Civil Practice and Remedies Code

Disputing Reasonableness and Necessity of Attorney's Fees claimed in debt collection cases 
Does Texas law govern the award of legal fees in credit card debt suits filed in Texas courts? 
Fee factors per Texas Supreme Court opinion in Arthur Anderson & Co. v. Perry Equip. Corp